Canopy Growth Corporation (TSX: WEED) (NASDAQ: CGC) slid in early trading on Friday after the company said it lost over C$2 billion in the second quarter– as falling margins and weak sales continue to plague the industry. The company announced its financial results for the first quarter ending June 30, 2022
The Smiths Falls, Ontario-based cannabis company delivered total revenue expectations of approximately C$122.9 million during the period — eking out over the Stifel analyst estimate for revenues of C$112 million — yet, the company also said it lost C$2.08 billion, or $5.23 a share, versus a profit of C$392.42 million, or C$1.02 a share, in the same time the previous year. The loss was driven by a non-cash, C$1.73 billion goodwill impairment.
Net revenue dropped 19% to C$110.12 million from C$136.21 million, the company reported. Analysts expected Canopy Growth to lose C$0.29 a share on revenue of C$112.7 million. The company said it held C$1.2 billion in cash and short-term investments at the end of the quarter. The company burned through C$200 million in one quarter as it ended March with $1.4 billion. The company attributed the spending to primarily EBITDA losses, and the upfront payment made as consideration for the options to acquire Jetty Extracts upon federal permissibility of THC in the U.S.
Diluted loss per share in the fourth quarter was C$5.23 versus diluted earnings per share of C$0.84 in the same period last year. Non-GAAP income before interest, taxes, depreciation, amortization, and share-based compensation (Adjusted EBITDA) was a loss of C$75 million in the second quarter of 2022, compared to losses of C$64 million in the same period last year.
“The cost-saving program announced earlier in the quarter combined with sound expense discipline contributed to a meaningful decline in operating expenses during the quarter,” said CEO David Klein. “We expect cost savings to ramp in the second half of the year, enabling us to execute on our path to profitability even as we continue to invest in strategic growth initiatives including in BioSteel and our U.S. THC ecosystem.”
What Went Wrong
The company blamed its poor showing on its decision to focus on higher margin, premium and mainstream products in the adult-use market. Canopy also noted that it was dealing with the continuing impacts of price compression resulting from increased competition and lower sales in the value-priced dried flower category. Several regions in Canada were affected by a rapid increase in licenses resulting in a boom of dispensaries. Having said that, the company acknowledged the decrease in the volume of value-priced dried product sold while also enjoying a full quarter of net revenue contribution from Supreme Cannabis. On the medical side, Canopy said that while it did have higher average orders, it was offset by a fewer number of orders.
In the adult-use market, sales fell for all form factors including flower, concentrates and edibles. On the medical side, sales fell for oils and soft gels, but did grow for flower and edibles. In the company’s other consumable products, Bio Steel was the only category that did well and increased 169%. This Works and Storz & Bickel both fell.